2. General obligation debt is the obligation of the government at large and is thereby backed by the government’s general credit and revenue-raising powers.

3. Revenue debt is secured only by designated revenue streams.

4. When the proceeds of general long-term debt are received by a governmental fund, rather than reporting a liability on the balance sheet, the inflow of resources is treated as another financing source on the operating statement.

6. A government is prohibited from ever recognizing bond anticipation notes (BANs) as long-term obligations.

7. Tax anticipation notes (TANs) must be reported as current liabilities of the governmental funds in which the related revenues will be reported, as well as in the government-wide statements.

8. Governments may enter into operating leases, but may not enter into capital leases.

9. In accounting for operating leases, the rental payments should be recognized in a governmental fund and as expenses in the government-wide statement of activities in the periods in which they apply.

10. Because they are not obligations of the government at large, revenue bonds are usually not subject to voter approvals or other forms of voter oversight.

11. Although governments may elect to report conduit obligations in their government-wide and proprietary fund statements, the GASB has ruled that note disclosure is sufficient.

MULTIPLE CHOICE (CHAPTER 8)

1. A governmental entity that is unable to satisfy claims against it
a) Is prohibited from filing bankruptcy.
b) May not seek protection under the Federal Bankruptcy Code.
c) May seek protection under the Federal Bankruptcy Code, using a special section directed to governments.
d) Is automatically placed under the jurisdiction of a higher level of government.

2. To seek protection under the Federal Bankruptcy Code, a governmental entity must
a) Be unable to provide the level of services it has provided in the recent past.
b) Be unable to pay its debt in its current year.
c) Have budgeted expenditures in excess of revenues.
d) Both (b) and (c).

3. General long-term debt of a governmental entity includes
a) All future financial obligations.
b) All future financial obligations that result from past transactions.
c) All future financial obligations that result from past transactions for which the government has already received a benefit.
d) All future financial obligations that are backed by the government’s general credit and revenue raising power and that result from past transactions for which the government has already received a benefit.

4. In governmental fund-type financial statements, the assets acquired under a capital lease would be reported at
a) They are not reported in the fund financial statements.
b) The present value of the required lease payments.
c) The undiscounted total of required lease payments.
d) The total of all payments required under the lease.

5. In the government-wide financial statements, the assets acquired under a capital lease would be reported at
a) They are not reported in the fund financial statements.
b) The present value of the required lease payments.
c) The undiscounted total of required lease payments.
d) The total of all payments required under the lease.

7. Pulling County has a December 31 fiscal year-end. In November, the County borrowed $8 million from a local bank, due in six months at 6% interest, to finance general government operations. The county pledges property tax revenues to secure the loan. At year-end, how should the bank note be displayed in the fund financial statements?
a) Nothing in the General Fund; Nothing in a Schedule of Changes in Long-Term Obligations.
b) General Fund–$8 million in Other Financing Sources; Nothing in a Schedule of Changes in Long-Term Obligations.
c) General Fund–$8 million in Other Financing Sources; $8 million in a Schedule of Changes in Long-Term Obligations.
d) General Fund–$8 million in Notes Payable; Nothing in a Schedule of Changes in Long-Term Obligations.

8. Governmental entities enter into capital leases, rather than conventional buy and borrow arrangements for which of the following reasons? Capital leases
a) May be an effective means of circumventing debt limitations.
b) Are less expensive overall than buy and borrow arrangements.
c) Reduce the cash outflows related to the asset acquisition.
d) Have less impact on fund balance than buy and borrow arrangements.

9. New City entered into a lease agreement for several new dump trucks to be used in general government activities. Assuming the City maintains its books and records in a manner that facilitates the preparation of the fund financial statements, acquisition of these dump trucks would require entries in which of the following funds and/or schedules?
a) General Fund only.
b) General Fund AND Schedule of Changes in Long-Term Debt Obligations.
c) General Fund AND Schedule of General Fixed Assets.
d) General Fund, Schedule of General Fixed Assets AND Schedule of General Long-Term Debt Obligations.

10. Southwest City enters into a lease agreement that contains a nonappropriation clause. The clause
a) Has been held by courts in 26 states to effectively cancel the lease.
b) Stipulates that the yearly lease payment must be appropriated by the City Council each year.
c) Prohibits the city from replacing leased property with similar property.
d) Permits the city to lease at lower rates than would be possible without the presence of the clause.

11. Why would a government issue revenue bonds (which generally are issued at a higher rate of interest than general obligation bonds) even though the government knows that if revenues from the project are not sufficient to cover principal and interest payments, the government will use resources from general government activities to fund the principal and interest payments?
a) Revenue bonds may not require approval of the voters.
b) Revenue bonds may not be considered in legal debt limitations.
c) Revenue bonds may permit the interest costs to be passed on to the users.
d) All of the above.

12. Which of the following funds is most likely to receive the proceeds of revenue bonds?
a) General Fund.
b) Capital Project Fund.
c) City Utility Enterprise Fund.
d) Highway Department Special Revenue Fund.

13. Sun City is located in Hailey County. Sun Valley School District encompasses all of Sun City and some of Hailey County. Property in Sun City is assessed at $400 million; property in Hailey County is assessed at $800 million; property in Sun Valley School District is assessed at $600 million. The total debt outstanding for Sun City is $30 million; Hailey County is $50 million; Sun Valley School District is $45 million. Compute the amount of direct and overlapping debt for Sun City.
a) $ 30 million.
b) $ 75 million.
c) $ 85 million.
d) $125 million.

14. Obligations of property owners within a particular government for their proportionate share of debts of other governments with whom they share boundaries is
a) Overlapping debt.
b) Conduit debt.
c) Committed debt.
d) Moral obligation debt.

15. Overlapping debt should be reported in which of the following ways?
a) It should be reported in the Schedule of Changes in Long-Term Obligations.
b) It should be disclosed as a note to the financial statements.
c) It should be reported in a schedule in the statistical section of the annual report.
d) It should not be reported in the financial statements of the reporting entity.

16. An obligation issued in the name of a government on behalf of a nongovernmental entity is called
a) Overlapping debt.
b) Conduit debt.
c) Committed debt.
d) Moral obligation debt.

17. The City of Pocahontas issued $20 million in general obligation bonds at par. The City loaned the proceeds to Domsee Fish Processors to expand the size of their facility, which would allow Domsee to hire additional workers. The loan payments from Domsee to the City are established to match the principal and interest payments on the bond issue. The bonds are payable exclusively from the loan repayments by Domsee. The bonds are secured by the additional plant facilities built by Domsee. Where should the City report the bonds on the annual financial report?
a) In the government-wide financial statements.
b) In the notes to the financial statements.
c) In the proprietary fund financial statements.
d) In any of the above ways.

18. Industrial development bonds are issued in the name of a government with the proceeds used to attract private businesses to a community. Which of the following is a true statement about industrial development bonds?
a) The proceeds are used by the private corporations and principal and interest payments are made by the private corporation. The government backs the bonds in the event of default by the private corporation.
b) The proceeds are used by the private corporations and principal and interest payments are made by the private corporation. The government does not back the bonds in the event of default by the private corporation.
c) The proceeds are used by the government to build infrastructure to service private corporations with principal and interest payments made by the government out of the additional tax revenues received from the private corporation.
d) The proceeds are used by the government to build infrastructure to service private corporations with principal and interest payments made by the private corporation in lieu of property taxes.

19. The Southside City has $95 million of debt recorded in its Schedule of Changes in Long-Term Obligations, made up of $60 million of general obligation debt, $2 million of compensated absences payable, $8 million claims and judgments, and $25 million of obligations under capital leases. The State limits the amount of general obligation debt that can be issued by a City to 20% of the assessed value of taxable property. The assessed value of property in Southside City is $500 million. The amount of legal debt margin for Southside City is
a) $ 5 million.
b) $ 40 million.
c) $ 60 million.
d) $100 million.

20. A state created a Housing Authority to provide financing for low-income housing. The Authority issues bonds and uses the proceeds for that purpose. Currently the Authority has outstanding $200 million in bonds backed by the State’s promise to cover debt service shortages should they arise. The State Constitution specifically limits the State to no more than $2 million in general obligation debt. How can the state officials defend the $200 million in debt outstanding?
a) The debt is not general obligation debt.
b) The State is only morally obligated on the debt.
c) The debt is the debt of the Authority not the State.
d) All of the above.

21. Debt that is issued by one entity but backed by the promise of another entity to make up any debt service deficiency is
a) Committed debt.
b) Overlapping debt.
c) Conduit debt.
d) Moral obligation debt.

22. A City entered into a long-term capital lease for some office equipment. Assuming the city maintains its books and records in a manner to facilitate preparation of fund financial statements, what entry would be made in the General Fund to record this event?
a) Debit Expenditures; Credit Other Financing Sources—Leases.
b) Debit Equipment; Credit Other Financing Sources—Leases.
c) Debit Equipment; Credit Leases Payable.
d) No entry since it this event had no impact on financial resources.

23. Which of the following is likely to be used by a bond-rating agency to rate the general obligation bonds of a governmental entity?
a) A review of the Basic Financial Statements.
b) Consideration of economic statistics such as unemployment rates.
c) Consideration of legal debt margin.
d) All of the above.

PROBLEMS (CHAPTER 8)

1. During the fiscal year ended 6/30/02 the City of Hartsville engaged in the following transactions. Assuming the city maintains its books and records in a manner that facilitates the preparation of its fund financial statement, prepare all necessary journal entries that the City should make for each transaction. Clearly indicate in which fund the entry is being made. If no entry is required, write ‘No Entry Required’.

a) In July 2001, the City issued $20 million in 6% general obligation term bonds to finance construction of a new building to house City offices. The bonds were issued at a premium of $200,000.

b) In September, 2001 the City transferred $1 million from the General Fund to cover the $.6 million principal and $.4 million interest payments due that month on debt issued in previous years.

c) In September, 2001 the City paid the principal and interest due from (b).

d) In June 2002, the City transferred $2 million from the General Fund to cover the $1.2 million interest payment and the $.8 million principal payment due in July on the bonds issued in July 2001.

2. A city enters into the following transactions during the current year. Assuming that the City maintains its books and records in a manner that facilitates the preparation of its fund financial statements, prepare entries to record the following transactions. Indicate the fund in which the entry is being made.

a) The City issues $5 million of tax anticipation notes, backed by property taxes that will be recorded in the General Fund.

b) The City issues $2 million of 90-day bond anticipation notes that it expects to roll over into long-term bonds.

c) The City repays the $5 million in (a)

d) The City successfully issues $20 million in long-term bonds and uses some of the proceeds to repay the notes in (c).

3. Young County engaged in the following debt-related transactions during the year. Assuming that Young County maintains its books and records in a manner that facilitates the preparation of its government-wide financial statement, prepare the necessary journal entries to record these transactions. Clearly indicate if debt is long-term or short-term (current). If no entry is required, write ‘No Entry Required’.

a) The County issued $5 million in 6%, 20-year bonds for $5,117,466 to yield 5.8 % to the investor.

b) The County made the first semi-annual interest payment on the bonds in (a). Assume an amount of $1,594 for amortization of the premium.

c) The County issues $3 million in 6% demand bonds for which it does not enter into a take-out agreement.

d) In anticipation of property tax revenues being received several months after fiscal year-end, the County borrows $2 million from a local bank payable in nine months.

e) The County leased a new machine for its County Highway Department in an arrangement that qualified as a capital lease. The present value of the minimum lease payments is $150,000, which approximates the fair value of the machine.

ESSAYS (CHAPTER 8)

1. Identify and define ‘conduit debt.’ What is/are the current reporting standards for conduit debt issued by governmental entities. Do you approve or disapprove of the use of conduit debt by governmental entities? Justify your answer. Do you approve or disapprove of the current reporting standards related to conduit debt? Why?

2. Generally accepted accounting principles require many assets to be reported at market values. However, few liabilities are reported at market value. What are the arguments for and against reporting liabilities at market value?

3. Why is information about long-term debt important to financial statement users?

Chapter 9

Business-Type Activities and Internal Services

TRUE/FALSE (CHAPTER 9)

1. In both the fund statements and the government-wide statements, business-type activities and internal services are on a full accrual basis, and their measurement focus is on all economic resources.

2. The operating statement required as one of the three basic financial statements for proprietary funds is called the statement of revenues, expenditures, and changes in fund net assets.

3. The amounts reported in proprietary fund statements are generally the same as those reported in the government-wide statements because both sets of statements are on a full accrual basis of accounting.

4. Governments are required to prepare a statement of cash flows for proprietary funds, but not for governmental funds.

6. The FASB mandates entities report their cash flows from operations using the direct method.

7. Governments generally do not have to get formal legislative approval for enterprise fund budgets or incorporate them into their accounting systems.

8. In accounting for closure and postclosure landfill costs in an enterprise fund, a government does not necessarily have to “fund” the costs during the landfill’s useful life; it merely has to report both an expense and a liability for them.

9. The revenues of an internal service fund are the expenditures and expenses of other funds of that government.

10. The proprietary fund statements do not include a total column for all proprietary funds.

MULTIPLE CHOICE (CHAPTER 9)

1. The appropriate measurement focus for the business-type activities of the City of Rockford is
a) Current financial resources.
b) Economic resources.
c) Both (a) and (b).
d) None of the above.

2. Which of the following is not a proprietary fund?
a) City Water Enterprise Fund.
b) City Motor Pool Internal Service Fund.
c) City Hall Capital Project Fund.
d) None of the above. They are all proprietary funds.

3. The appropriate basis of accounting for the proprietary funds of a governmental entity is
a) Cash basis.
b) Modified accrual.
c) Full accrual.
d) None of the above.

4. Which of the following is NOT a valid reason for governmental entities to engage in business-type activities?
a) The activities provide resources that would otherwise have to be raised in other ways.
b) The entity can provide the services more cheaply or efficiently than can a private firm.
c) The entity wants to subsidize the activity.
d) All of the above are valid reasons for governments to engage in business-type activities.

5. Which of the following is NOT a budget typically prepared for an activity accounted for in a proprietary fund?
a) Appropriation budget.
b) Cash budget.
c) Capital budget.
d) Flexible budget.

6. A proprietary fund of a governmental entity has donor-restricted assets on its balance sheet. Which of the following best describes where and how those assets will generally be displayed?
a) In a separate restricted asset category on the balance sheet.
b) Intermingled with other assets on the balance sheet.
c) Intermingled with other assets on the balance sheet but footnoted.
d) In a separate restricted fund.

Use the following information to answer #7 and #8.

The City of Brockton voted to establish an internal service fund to account for its printing services. The City transferred $500,000 cash from the General Fund to the newly created internal service fund.

7. The appropriate entry in the General Fund to account for this transfer would be a credit to cash for $500,000 and a debit for $500,000 to
a) Operating Transfer Out.
b) Nonreciprocal Transfer Out.
c) Expenditures.
d) Investment in Internal Service Fund.

8. The appropriate entry in the proprietary fund is a debit to cash for $500,000 and a credit for $500,000 to
a) Operating transfer in.
b) Nonreciprocal Transfer In.
c) Capital Contribution (Revenues).
d) Investment provided by the General Fund.

9. The City issued $2 million in general obligation bonds to acquire a fleet of vehicles for the Central Motor Pool Internal Service Fund At the date of issue, the appropriate entry in the proprietary fund is a $ 2 million debit to cash and a $2 million credit to
a) Bonds Payable.
b) Contribution Capital (Revenues).
c) Contributed Capital (Revenues) AND show $2 million as an addition to the Schedule of Changes in Long-Term Obligations.
d) No entry in the proprietary fund. Show $2 million as an addition to the Schedule of Changes in Long-Term Obligations.

10. Which of the following is NOT a rationale/justification for reporting the business-type activities of a government in a separate fund?
a) Legally restricted resources should be reported apart from those that are unrestricted.
b) Separate funds facilitate budgeting, planning, and controlling.
c) Separate funds facilitate the assessment of performance of the activity.
d) Separate funds facilitate the assessment of fiscal status of the activity.

11. Which of the following are required basic statements of a proprietary fund?
a) Balance Sheet, Income Statement, Statement of Cash Flows.
b) Balance Sheet, Statement of Revenues, Expenses, and Changes in Equity, and a Statement of Cash Flows.
c) Statement of Net Assets, Statement of Revenues, Expenses, and Changes in Fund Net Assets.
d) Statement of Net Assets, Statement of Revenues, Expenses, and Changes in Fund Net Assets, and Statement of Cash Flows.

12. Franklin County operates a solid waste landfill that is accounted for in an enterprise fund. The County calculated this year’s portion of the total closure and postclosure costs associated with the landfill to be $300,000. The entry(ies) to record this cost should be
a) Debit Landfill Expense $300,000; Credit Liability for Landfill Costs $300,000.
b) Debit Landfill Expense $300,000; Credit Liability for Landfill Costs $300,000 AND include an addition of $300,000 on the Schedule of Changes in Long-Term Obligations.
c) Show only an addition of $300,000 on the Schedule of Changes in Long-Term Obligations.
d) No entry in any fund; No entry in the Schedule of Changes in Long-Term Liabilities.

13. Marsh Lake County operates a solid waste landfill that is accounted for in a governmental fund. The County calculated this year’s portion of the total closure and postclosure costs associated with the landfill to be $600,000. The entry to record this cost should be
a) Debit Landfill Expenditure $600,000; Credit Liability for Landfill Costs $600,000.
b) Debit Landfill Expenditure $600,000; Credit Liability for Landfill Costs $600,000 AND include $600,000 as an addition on the Schedule of Changes in Long-Term Obligations.
c) No entry in the fund; include $600,000 on the Schedule of Changes in Long-Term Obligations.
d) No entry in any fund or Schedule.

14. Over the long run, governmental internal service funds are intended to
a) Generate revenues sufficient to cover the full costs of providing services.
b) Generate revenues sufficient to cover the full costs of providing services and to earn a profit.
c) Generate revenues sufficient to cover the current operating costs of providing services.
d) Generate revenues sufficient to cover the current operating costs of providing services and to earn an operating profit.

15. Which of the following is NOT true about internal service funds as reported in the fund financial statements?
a) Costs reported by internal service funds are reported twice within the same set of financial statements.
b) Billing rates must be set to cover the full cost of providing the goods or services.
c) Depreciation can be charged to governmental funds through the billing rates established by the internal service fund.
d) Deficits or surpluses in the general fund can be transferred to the internal service fund by adjusting the billing rates.

17. A Statement of Revenues, Expenses, and Changes in Fund Net Assets should include which of the following in addition to operating revenues and operating expenses and ending Net Assets?
a) Nonoperating revenues and expenses.
b) Nonoperating revenues and expenses, and Other changes in Net Assets.
c) Nonoperating revenues and expenses, Capital Contribution and Other changes in Net Assets, and Beginning Net Assets.
d) None of the above.

18. In which of the following circumstances must an enterprise fund be used to account for the activity?
a) A newly created electric utility fund will finance its operations by a charge to users based on kilowatt hours used.
b) To finance the acquisition of plant facilities a newly created electric utility issues general obligation debt.
c) To finance the acquisition of plant facilities a newly created electric utility issues revenue bonds which will be repaid from operations of the electric utility.
d) To acquire needed plant facilities a newly created electric utility enters into long-term lease agreements.

19. Washington County has designated the general fund as the single fund to account for its self-insurance activities. What is the maximum amount that can be charged to expenditure in the general fund related to the self-insurance activities?
a) The amount of ‘premium’ charged to the other funds.
b) The amount of actual claims expenditures.
c) The actuarially-determined amount necessary to cover claims, expenditures, and catastrophic losses.
d) The amount transferred from other funds and activities to the general fund for self-insurance purposes.

20. Lehi City has designated an internal service fund as the single fund to account for its self-insurance activities. Most of the insured activities such as the police department, fire department, and general government functions are accounted for in the General Fund. What is the maximum amount that can be charged to expenditure in the General Fund related to the self-insurance activities?
a) The amount of ‘premium’ charged to the General Fund by the internal service fund.
b) The amount of actual losses incurred by the insurance activity.
c) The actuarially-determined amount necessary to cover claims, expenditures, and catastrophic losses.
d) The amount transferred from the General Fund to the internal service fund for self-insurance purposes.

Use the following information to answer questions #21 and #22.
During the year the City’s Self-Insurance Internal Service Fund billed the General Fund $300,000 for ‘premiums,’ of which $30,000 was for catastrophic losses and the balance was the premium computed on an actuarially-determined basis. During the year the City incurred $250,000 in claims losses. The total amount transferred to the Self-Insurance Fund by the General Fund was $310,000.

21. The amount the City Self-Insurance Fund can recognize as revenue is
a) $310,000
b) $300,000.
c) $270,000.
d) $250,000.

22. The amount the City General Fund can recognize as expenditure is
a) $310,000.
b) $300,000.
c) $270,000.
d) $250,000.

23. When a governmental enterprise fund has restricted assets on its balance sheet which of the following is a true statement?
a) The total of the restricted assets in the asset section will be equal to the “Restricted Net Assets” amount in the equity section.
b) The total of the restricted assets will be offset by a liability of an equal amount.
c) The total of the restricted assets less related liabilities will be equal to the “Restricted Net Assets” amount in the equity section.
d) None of the above statements is true.

24. Any internal service fund balances that are not eliminated in the consolidation process should generally be presented on the government-wide financial statements
a) Should not be presented on the government-wide financial statements.
b) In the internal service fund column.
c) In the governmental activities column.
d) In the business-type activities column.

25. On the fund financial statements, internal service activities should be presented
a) In the Propriety Fund statements, net of interfund eliminations.
b) In the Governmental Fund statements, net of interfund eliminations.
c) In the Proprietary fund statements, without any interfund eliminations.
d) In the Governmental Fund statements, without any interfund eliminations.

26. Cash flows from Operating Activities does NOT include which of the following as cash inflows?
a) Cash collection of receivable for sale of services.
b) Grants for operating activities.
c) Interest and dividends earned.
d) Receipts for services performed for other funds.

27. Cash flows from Operating Activities does NOT include which of the following as cash outflows?
a) Grants to other governments for operating activities.
b) Grants to other governments for capital asset acquisitions.
c) Payments for services performed by other funds.
d) Payments in lieu of taxes.

PROBLEMS (CHAPTER 9)

1. Benton County voted to establish an internal service fund to account for printing and copying for all its department and agencies. The County engaged in the following activities related to the new fund. Prepare transactions to record these events in the internal service fund. If no entry is required, write “No Entry Required.”

a) The County Commission voted to transfer $200,000 from the General Fund to the internal service fund to establish the new fund.

b) Leased equipment to be used in printing activities. The total lease obligation is $600,000.

c) Issued $1 million in general obligation bonds at 101. The bonds were issued to acquire additional equipment. The bonds are to be serviced from the internal service fund.

d) Purchased equipment at a cost of $980,000. The equipment has an estimated useful life of nine years and an estimated salvage value of $80,000.

e) Billed the General Fund for 1998 copying and printing charges, $70,000.

f) Paid salaries to printing employees, $50,000.

2. The City of Petersburg has operated a City Utility Enterprise Fund for a number of years. The fund accounts for the activities of the City-owned electric, water and sewer systems. During the current year, the City engaged in the following transactions related to the City Utility Fund. Prepare the appropriate journal entries. If none is required, write “No Entry Required.”

a) The City billed its customers $1 million for services provided during the year.

b) The City received $260,000 from a developer to connect new houses to the existing utility lines.

c) Depreciation on existing physical plant was $700,000.

d) Revenue bonds in the amount of $2 million were issued at par to finance new construction. The bond agreement requires that the City retain $200,000 of the bond proceeds for purposes of servicing the debt if revenues are not sufficient to do so.

3. The City of San Dominguez received a $500,000 federal grant to acquire several buses to be used in its public transit system. The City paid $400,000 to acquire several buses. At year-end, $100,000 of the grant had not yet been used. During the year total depreciation on the buses was $40,000. Revenues for the public system were $600,000, operating expenses (other than depreciation) were $470,000. Assuming the Public Transit Proprietary Fund began the year with Unrestricted NetAssets of $420,000, prepare the following for the Public Transit Enterprise Fund.
a) Statement of Revenues, Expenses, and Changes in Fund Net Assets.
b) Net Asset section of the Balance Sheet.

4. Greene County operates a solid waste landfill that is accounted for as an enterprise fund. At the end of 1999, the Landfill Enterprise Fund had a Liability for Landfill Costs of $50,000. The County estimated the costs associated with closing monitoring the landfill as follows. Calculate the total costs as of year-end 2000 and 2001 and the current period costs. Prepare the required journal entry(ies) at year-end 2000 and 2001. Be sure to show all of your work.
2000 2001
Costs
Equipment to be installed $2.5 million $3.0 million
Final cover $ .5 million $1.0 million
Monitoring and maintaining $4.0 million $4.0 million
Capacity used in total 30,000 58,000
Estimated total capacity 600,000 580,000

ESSAYS (CHAPTER 9)

1. Internal service funds are used by many governmental entities to account for activities that provide services to the entity itself. What are the ramifications of such an accounting arrangement? What are the effects on the entity’s financial statements?

2. Governmental entities may elect to account for their landfill activities in either of two different funds. Explain the differences that would result if one government elected to account for its landfill activities in its general fund and another government elected to account for its landfill activities in an enterprise fund.

3. Because of the rising cost of commercial insurance, many governments have elected to be ‘self-insured.’ Explain what is meant by being ‘self-insured.’ Explain the difference in the accounting for self-insurance activities between a governmental fund and a proprietary fund.